The offshore wind industry is poised for growth, but developers and their insurers need to successfully manage a range of risks to successfully scale this industry globally, said Allianz in a recent report.
In ‘A turning point for offshore wind’, Allianz Commercial highlights growth opportunities, tech innovations, risk trends, and loss patterns for the global industry.
The potential of offshore wind as a viable source of clean power for the energy transition is indisputable, and investment in the sector is growing rapidly around the world.
But in order to successfully scale offshore wind globally, developers and insurers still need to manage a range of risks. These include prototypical technology, economic pressures, more extreme weather conditions, cable damage, and collision perils, as well as environmental concerns.
Anthony Vassallo, Global Head of Natural Resources, Allianz Commercial, commented: “Offshore wind farms are highly complex projects. The lessons learned from past losses – which are primarily damage to cables and turbines – are essential for the industry to continue to grow sustainably.
“Emerging risks need to be explored, too, as developers prepare for widescale deployment of offshore wind around the globe. The size of turbines is ever increasing, wind farms are moving further out into harsher marine environments where they are more exposed to extreme weather, and technological innovation is constantly progressing.
“Navigating biodiversity issues in coastal communities will also become more important as demand for ocean space is set to increase fivefold by 2050.”
Currently, more than more than 99% of the total global offshore wind installation is in Europe and Asia-Pacific today, but the US is investing heavily in this sector. China has overtaken Europe as the world’s biggest market, with half of the world’s offshore wind installations in 2023 expected to be in the country.
While growth ambitions are huge, spiralling costs have halted major wind projects recently and the industry is impacted by inflation, capital expenses, rising interest rates, and geopolitical instability, the report noted.
The cost of materials and vessel hire have risen, while the supply of materials and access to contractors remains challenging. Supply chain bottlenecks, lengthy permitting procedures and delays to grid connections are also exerting pressure.
The report also found that damage to cables is the top cause of insurance claims, followed by turbine failure. In Germany and Central Eastern Europe, Allianz Commercial has seen 53% of offshore wind claims by value from 2014 to 2020 relating to cable damage, while damage claims by turbine failure is 20%.
“Cable risk is critical and therefore the quality of service is vital. Contractors need to provide assurance they have the required expertise to remedy incidents and that they can source replacement components quickly in order to contain losses incurred during downtime,” explains Reed.
“From an underwriting perspective, with subsea cabling work insurers pay close attention to the type of cabling used, the kind of vessels involved, the communication between client and contractor, and how often qualified risk engineers will make site visits to oversee proceedings.”
The sector has to carefully manage the deployment of emerging technologies at scale, analysts also note. This, along with an increase in turbine size, creates challenges and increases risks.
Dr Wei Zhang, Senior Risk Consultant, Natural Resources, Allianz Commercial, explained: “With new technological approaches and an increase in turbine size comes a corresponding increase in risk. We are closely monitoring the many innovations in the offshore wind industry which include prototypical technologies, pilot projects, and evolving standardisation.
“These new and unproven technologies often come with a lack of technical maturity and data available. By partnering with clients in the early stages of projects, and exchanging knowledge and learnings, all parties will gain a greater understanding of the exposures involved.”
Availability of specialist vessels is another pressing problem identified in the report, as well as vessel collision with turbines and offshore infrastructure. These can result in significant losses, with an uptick in incidents seen in recent years.
Finally, as the sector expands into new territories, weather and natural catastrophe risks increase. Additionally, despite its invaluable contribution to the net-zero transition, the offshore wind industry needs to be mindful of responsible development and environmental stewardship, the Allianz report points out.
This includes managing its impact on biodiversity and marine wildlife or the sourcing of required raw materials such as rare earth elements or lithium.
